Are You Saving Too Much for Retirement? (It’s More Common than You Might Think)

We hear a lot of horror stories these days about people saving too little, but the fact is that some people are actually saving too much for retirement.

It is possible to have too much of a good thing…

It’s safe to say that my grandfather is one who saved too much because even though he lived for 30+ years after retiring at the age of 65, he died with more money than he could have ever used while alive.

He was born in 1901, and anyone could see the impression those times made on him by how he lived. When he retired at the age of 65, with a net worth north of $1 million, my grandfather continued to live in the same simple home with no mortgage. He drove a car that was at least two decades old and kept a broomstick propped against the refrigerator door to keep it closed because the seal had broken years ago.

A combination of good genes and healthy habits meant he lived to be just a month shy of his 97th birthday, but it’s doubtful that he ever truly enjoyed the fruits of all of those years of scrimping and saving. He never traveled, didn’t purchase anything for himself beyond the basic necessities, and his only hobby was watching the weather channel. But after 65 years of frugal living, that behavior was ingrained. He wasn’t suddenly going to start wearing Gucci loafers and wintering in the Maldives.

How Many People Are Actually Saving Too Much for Retirement?

In 2013, David Blanchett, Head of Retirement Research at Morningstar Investment Management published the results of his research into estimating the true cost of retirement and found that many retirees actually need about 20% less in savings than the common assumptions for retirement savings would indicate.

Why Are People Overestimating Retirement Needs?

For years, the rule of thumb has been to replace 70 to 80% of your working wages to live comfortably in retirement.

However, Blanchett’s analysis found that some retirees can actually live quite comfortably on a little more than half of their working income and inflation has a much smaller effect on retiree spending.

The problem with figuring out how much to save for retirement is wading through the different kinds of advice. So much of what you read is a one-size-fits-all formula with so many unknowns and a lot that is not relevant to you. If you retire at the age of 65, how long will you live? What will your medical or long-term care expenses be? Will you live through periods of runaway inflation or a stock market crash? Will your adult children fall on hard times and need financial help?

How much any given retiree will spend in retirement varies dramatically based on personal circumstances and lifestyle. It’s ironic, but the biggest savers are typically the ones who need the least amount of money in retirement, mostly because they’ve become accustomed to living well below their means.

How Much Will YOU Really Need for Retirement?

So how can you tell how much income you’ll need? While the 70 to 80% rule works well for people with 20 to 30 years to go before retirement, if you are nearing retirement age, a better method is to simply estimate your actual retirement expenses. In some cases, the best course of action is just to sit down with a paper and pencil (or a spreadsheet) and run the numbers.

Go line-by-line through your current budget. Some expenses you won’t have, such as payroll taxes, savings, work clothes and commuting. Will your mortgage be paid off by the time you hit retirement? If so, you won’t have a mortgage payment, but you will still have to account for home repairs, insurance, property taxes, and utilities.

Some expenses will likely go down. While many retirement models predict that spending on food will increase in retirement when people have more time for travel and dining out, retirees actually spend less. According to a 2015 report the Bureau of Labor Statistics, average annual spending on food peaks between the ages of 35 age 44 years ($7,920 in 2013). However, food spending drops to $5,191 for those age 65 and older, likely because retirees have more time to prepare meals at home, clip coupons, and bargain hunt. Health care costs are one of the few line items that will likely increase during retirement, although being covered by Medicare offsets some of the extra cost.

Take other factors into account as well. Do you want to leave a legacy for your children or your favorite charity? What kind of lifestyle do you want to live in retirement? If you want to travel, take those costs into account. If you have a lot of debt, how soon will it be paid off?

Talking with a financial advisor or using an online detailed retirement planning system can help you figure out how your needs and wants will drive how much YOU need for retirement.

The NewRetirement retirement planning calculator is one of the most comprehensive tools available. Start by entering some basic information and get some initial feedback on where you stand. Then you can add a lot more detail and really get an accurate estimate for how much you need. Forbes Magazine calls this system “a new approach to retirement planning” and it was named a best retirement calculator by the American Association of Individual Investor’s (AAII) and CanIRetireYet.

Advice for Over-Savers

If you run the numbers and discover that you’ll likely need less in retirement than originally thought, nobody is suggesting you STOP saving. However, make sure that the sacrifices you are making in order to save for retirement don’t come at the expense of enjoying your present life.

Here are 6 tips for people who are saving too much for retirement:

1. Take a good look at the numbers

Many people who are not saving enough have simply not taken the time to figure out exactly how much they need. The same is probably true of people who are saving too much for retirement.

If you use a retirement planning calculator that is detailed and personalized enough to help you feel confident about your future, then you may be better able to relax your tendency toward saving. The NewRetirement calculator even let’s you try different scenarios so you can feel confident about how much you might need given different sets of contingencies.

2. Rediscover hobbies

My grandfather received a set of golf clubs at his retirement party – a gift that collected dust while he sat watching the weather channel for the next 30 years. Is that how you want to spend your retirement years? Working and raising children often results in people forgetting about hobbies and activities they enjoy. If you’ve lost sight of what you enjoy doing in your free time, work on rediscovering those passions.

3. Develop relationships outside of work

Our consumer-driven society has trained everyone to believe that more stuff will make us happy, but often the opposite is true. Paying for more stuff means working more hours, and we forget about what really makes us happy, which is spending time with people we like. Cultivate relationships that matter the most to you, with family, friends, people at church or in a social group.

4. Assess what working and saving is doing for you

If you think you are saving too much for retirement, ask yourself some hard questions. Saving too much is never a bad thing, but you don’t want to have regrets in the future. Why are you so focused on frugality and saving?

Many people genuinely love their work and leisure gives them more stress than the daily grind and excitement of their career.

Other people are living to work instead of working to live. Your career may be lucrative, but is the stress of your job taking a toll on your health? You could be saving for a long retirement that you’ll never get to enjoy if long hours and stress are making you sick. Sometimes, the best savings plan is investing in your health. Take the time to exercise and eat healthfully. If your job makes that impossible, consider a career switch, even if that means a smaller paycheck. Some of that excess savings might be put to better use in a small business you’ve always dreamed of starting.

5. Start small

If you are an over saver, you are probably extremely disciplined and not fast to make a big splurge with either your time or money. It’s okay to start small. For example: you don’t have to spring for tickets around the world, but you could try out a weekend away at a hotel slightly out of your frugal budget.

6. Go slow, take time to develop new habits

Most importantly it is important to give yourself time to adjust to the idea of enjoying life instead of worrying too much about money.

A study found that it takes 66 days — on average — for something to become a habit. The range was 18 days to nearly 3/4 of a year for people to ingrain a new behavior into their lives. And, this research was focused on relatively simple behaviors like drinking a glass of water with lunch — not whole lifestyle changes.

Of course, it’s better to have too much money saved for retirement than not enough. But don’t deny yourself life’s pleasures to maximize your nest egg. Some people compromise their lifestyle today for what they think will be their golden years tomorrow. Your golden years are right now. Save for retirement, but make sure you’re also accumulating experiences and hours spent with loved ones and friends. After all, that’s the true measure of a life well spent.